Myer, DJs' online plans: tell 'em they're dreaming

It takes a 10-minute conversation with someone who really knows the business to destroy the announced Myer and David Jones internet ambitions of achieving 10 per cent of sales online. After last week's effort to talk up department store sales and the hype over tomorrow's 'Click Frenzy' promotion, tell 'em they're dreaming.

The pair's 'omni channel' internet strategies – pretty much cut-and-paste jobs from Nordstrom's annual report – are based on a lack of understanding of the businesses they are trying to copy, fundamental differences between US and Australian retail structures and the simple mistake of comparing apples with oranges. Or perhaps sheep with goats.

It's a bit like adopting Usain Bolt's diet and training schedule and announcing that you'll soon be doing sub-10 seconds for the 100 metres. There's a little bit more to it than that. Myer and DJs have more in common with Big W and Target than the foreign department stores which enjoy online success.

Cataloguing the differences

At its most basic, the vast majority of Americans who want to buy from Neiman Marcus, Saks or Nordstrom have to shop online or by catalogue. The vast majority of Australians already walk by a David Jones or Myer store each week or so and have no apparent reason or desire to bother to look inside.

Neiman Marcus, Saks and Nordstrom all had established catalogue businesses to start with in a country with a very strong catalogue culture - internet shopping effectively is catalogues online. Myer and David Jones don't and Australia doesn't.

Neiman Marcus, Saks and Nordstrom remain aspirational brands with strong service reputations. Myer and David Jones have become commonplace, mid-market, and their service reputations are shot.

To put numbers to it, according to David Jones' own Future Strategic Direction” announcement, Neiman Marcus, Saks and Nordstrom respectively reap 16.3, 9.2 and 9.1 per cent of their sales from on-line customers. The British online success, John Lewis, has 16.7 per cent of sales online. Less than one per cent of David Jones and Myer sales are online.

Neiman Marcus operates 43 stores in a country with a population of 323 million people – 7.5 million per store. Saks has 45 stores – 7.2 million people per store. Nordstrom 117 stores (ignoring clearance outlets) – 2.8 million per store. John Lewis has 41 stores for a population of 60 million people – 1.5 million per store. It ranges from difficult to nigh-impossible for most people to actual enter one of those department stores for a look, let alone a purchase.

By comparison, Myer has 69 stores and David Jones 36 servicing a population of less than 23 million. Rounding down, that's 0.3 and 0.6 million people respectively per store. For most people, it's comparatively easy to visit a Myer or David Jones shop.

And the actual gap between the American and Australian experience is bigger than the numbers indicate.

Malls vs shopping centres

The Australian mall experience includes supermarkets and discount department stores as well as specialty shops and now cinemas that drive regular foot traffic past the department stores. The typical American mall does not. In retailer-speak, non-discretionary shopping is not done in malls; the supermarkets and Wal-Marts are stand-alone operations elsewhere with their own parking. There's a greater, specific effort required to go to the doors of a department store, there are fewer physical department store exposures and more reasons for internet transactions.

The limited number of stores and their location make online the only viable or convenient way for most Americans to shop at Neiman Marcus, Saks and Nordstrom.

But wait – there's more. According to Myer's annual results presentation, the company's total internet site visits were 14 million in 2012. By comparison, Westfield Parramatta – just one Sydney shopping centre – has 28.6 million visits a year. More than twice as many potential DJs/Myer shoppers passed by just one of their bricks stores as potential shoppers nationally looked at their internet front door.

If the offer/value/service/whatever can't capture customers already at the physical store, there's not a lot to suggest they'll start flocking in large numbers to a virtual shop.

I'd argue that the co-location of K-Mart and Big W with Myer and David Jones stores is making the latter's job harder as the former dramatically improve their value offering while the latter flounder having failed to develop overarching quality brands.

The American tradition of catalogue shopping extends much further than the top department stores. L. L. Bean, Lands End and J. Crew et al are part of the American snail and e-mail retail furniture. And the service, quality and satisfaction reputations of the high end US department stores continue to be rigorously guarded while the reputations of Myer and David Jones have gone the way of missing floor staff.

Opening more stores won't help

The above mainly is my embellishment of retail realities garnered from conversation with former Accenture partner and Myer and Coles Myer executive, Neil Osborne. Osborne was a key member of teams that twice resuscitated Myer's bottom line, first as Peter Wilkinson's chief operating executive (CFO and supply chain) and then with TPG's tidy-up. His career included a spell as CML Group general manager retail services, a role that allowed an overall strategic view of both discretionary and non-discretionary retailing subsequently expanded put to work at Accenture on further on large global retail projects.

While there's the odd trimming, Myer and David Jones still seem set on rolling out ever more stores – a supermarket-style plan of growing sales through growing floor space, and in the process they're making their online target ever more of a dream.

Meanwhile, the store they're trying to copy is making a target of the Australian market. Australians can browse and shop the service-proud Nordstrom site in Australian dollars with a flat-rate shipping offer of $19.95 for orders of more than $100.

Myer, trying to get with this internet thing, is offering some free delivery, but it also has online customer service available only from 9 to 5, a web site with a FAQ section that doesn't make sense in several areas and informs would-be customers that clothing size charts are not available.

And over at David Jones, there's not a single non-executive director with retail experience, increasing the chances of the board not knowing what they don't know. DJs chairman Bob Savage used to be on the Fairfax board when it lacked media experience – something that didn't work out all that well. Come to think of it, there's considerably more retail know-how among the Fairfax NEDs than DJs. Maybe they could swap.

Michael Pascoe is a BusinessDay contributing editor.

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